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STATES’ FINANCIAL WOES CONTINUE: States Begin a New Fiscal Year, but Face the Same Old Budget Problems

On July 1, the official beginning of the fiscal year for almost all states, officials in six states were still struggling to agree upon a budget for the new fiscal year. In addition to conflicts between governors and state legislatures, state governments face continuing declines in fiscal health despite cuts in popular programs such as education and Medicaid, according to a recent report by the National Governors Association (NGA).

As one of the six states yet to agree on a budget, California’s budget crisis is by far the worst in the country. After missing the midnight deadline to enact a budget, California began operating on borrowed cash…and continued to face a $38 billion budget deficit. The state will not have to shut down, but it will have to stop payments to some agencies and contractors. The longer the budget impasse continues, the more services will be affected. Five other states-Connecticut, Nevada, Oregon, New Hampshire, and Rhode Island-have also failed to enact a spending plan for the new fiscal year. They are funding government activities with temporary spending measures as talks continue.

For the most part, disagreements on spending plans fall into two camps: Democrats who want to raise taxes to avoid cuts to popular programs, and Republicans who are resisting tax increases and seeking to cut programs. Already, proposed spending for 2004 would be lower in real and dollar terms than in 2003-the first such decline since 1983 according to the NGA report. Meanwhile, Medicare spending continues to grow as a percentage of state spending, increasing 13 percent in 2002, 8 percent in 2003, and a predicted 4.9 percent in 2004.

In addition to Medicare spending, state governments still struggle to meet federal education mandates as required by No Child Left Behind (NCLB) and the Individuals with Disabilities Education Act. For fiscal 2004, the President’s budget includes $22.7 billion for NCLB programs, $9.7 billion below the authorized amount. In addition, the 2004 Bush budget proposes $9.5 billion for IDEA special education-an amount nearly $11 billion short of the amount needed to fully fund special education.

Such shortfalls have not escaped the attention of Democrats in Congress. Currently, at least four bills have been introduced that would require Congress to fully fund NCLB. A bill by Sen. Dick Durbin (D-IL) would release schools and local education agencies from the requirements of “school improvement, corrective action, or restructuring” unless Congress appropriates at least 95 percent of Title I authorization levels as defined in NCLB. Bills by Reps. Bob Etheridge (D-NC) and Dennis Moore (D-KS), H.R. 2366 and H.R. 2394, respectively, would allow states to suspend, or at least temporarily defer, NCLB’s requirements in the absence of full funding.

A bill by Rep. Chris Van Hollen (D-MD) would go a step further, essentially making funding mandatory for IDEA and NCLB for several years into the future and setting specific funding amounts for those years. The bill, H.R. 2107, the Keep Our PACT Act, would make up the difference between appropriated and authorized amounts by appropriating more money to make up for the shortfall.

More information on the NGA report is available at: http://www.nga.org/nga/newsRoom/1,1169,C_PRESS_RELEASE%5ED_5631,00.html

More information on each bill is available from Thomas, a site by the Library of Congress that provides legislative information on the Internet, at: http://thomas.loc.gov/

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